Mumbai: HDFC Bank Ltd, India’s second largest private-sector lender, on Wednesday reported a 31% rise in second quarter profit as it benefited from higher demand for consumer loans.

Net profit rose to ₹ 1,199.35 crore in the three months ended 30 September from ₹ 912.14 crore a year earlier.

Profit boost: A branch of HDFC Bank in Mumbai. Net profit rose to Rs 1,199.35 crore in the three months ended 30 September from Rs 912.14 crore a year earlier. By Bloomberg

Demand for personal loans and home and vehicle finance as well as higher fee income contributed to the profit growth, said Paresh Sukthankar, executive director of HDFC Bank. Retail loans increased by 34% in the quarter, outpacing the 20% year-on-year growth in the bank’s total loan book.

“Retail loans have grown much quicker and we expect the trend to continue for the next two quarters," Sukthankar said. “Corporate loans have mostly been working capital-related, which were tied up sometime back. They have grown at least 2% lower than the total book."

HDFC Bank’s balance sheet is spilt equally between corporate and retail loans. Retail loans make up ₹ 92,000 crore of the ₹ 1.89 trillion advanced by the lender.

In the retail segment, loans for commercial vehicles and construction equipment and small businesses have grown close to 40%, Sukthankar said.

Analysts said the results are positive at a time when rising interest rates and an economic slowdown are raising concerns about non-performing assets (NPAs) increasing in the banking industry.

“This is a better managed bank and even if net interest margins have fallen 10 basis points, NPAs have actually come down," said Ajay Parmar, head, institutional research at Emkay Global Financial Services Ltd. One basis point is one-hundredth of a percentage point.

The bank’s net interest margin, or the difference between interest charged on loans and that paid for deposits, dropped to 4.1% in the quarter from 4.2% a year earlier. Net NPAs dropped from 0.3% of advances a year earlier to 0.2% at the end of September.

Emkay has a “hold" rating on HDFC Bank with a target of ₹ 510 per share. On Wednesday, HDFC Bank shares ended at ₹ 491.10 on the Bombay Stock Exchange, up 3%. The benchmark Sensex ended at 17085.34, up 2.01%.

“Asset quality remains sanguine and also the fact that other income has grown 26% year-on-year means that private sector lenders continue to hold an edge over their public sector counterparts," said Rajeev Mehta, a research analyst at India Infoline Ltd.

Mehta of India Infoline said a decline in the bank’s low cost current and saving account (Casa) deposits was the only negative. From 50.6% of total deposits a year earlier, the proportion of Casa deposits fell to 47.3% in September.

The fall in Casa increased HDFC Bank’s cost of funds by 100 basis points from a year ago. Apart from the marginal drop in low-cost Casa, an increase in the mandated savings bank rate also contributed to the increased cost of funds. The savings bank rate has risen from 3.5% to 4%.

Sukthankar said he does not expect further pressure on the cost of funds due to funds shifting towards fixed deposits.

Fixed deposit rates “have stabilized and though they won’t come off in the next two months, we do not see incremental pressure from here," he said.